The currency markets started the week on a cautious note as the US dollar strengthened, driven by safe-haven demand after renewed geopolitical tensions between the United States and Iran near the Strait of Hormuz. The US Dollar Index held firm above 101.00 during Monday’s European session, trading near 101.36 and on track for a monthly gain of about 2.5% — its strongest monthly advance since July last year.
Iran’s Islamic Revolutionary Guard Corps claimed to have targeted US military sites in Kuwait and Bahrain following US strikes on Iranian positions. Although tensions later appeared to ease, the initial escalation reignited fears over regional stability and oil supply disruptions. Higher oil prices contributed to inflation concerns, reinforcing expectations that the Federal Reserve will keep interest rates elevated for longer. This sentiment deepened the yield advantage of US bonds over European and Japanese counterparts, making dollar-denominated assets more attractive.
The euro hovered near 1.1400 against the dollar, close to a 13-month low and headed for a monthly decline of about 2.3%. The Japanese yen traded near 161.80 — a four-decade low — while risk-sensitive currencies like the Australian and New Zealand dollars remained under pressure. Attention now shifts to the European Central Bank’s annual forum in Sintra, Portugal, where comments from President Christine Lagarde and other policymakers will be scrutinized for clues on the eurozone’s monetary policy path.
For cryptocurrency markets, the dollar’s broad strength and the flight to safety typically reduce appetite for risk assets like Bitcoin and Ethereum. While some view Bitcoin as a geopolitical safe haven, its correlation with risk sentiment often leads to short-term selling pressure when the dollar rallies. The combination of hawkish Fed expectations, upcoming US employment data, and potential volatility from the ECB forum could keep crypto markets on edge.
